Another clear example and a convincing confirmation of the effectiveness of Russian-German energy partnership is the plan to develop South Russian field, which is located in the Krasny Selkup District of the Yamal-Nenets Autonomous District. The development license is held by a Gazprom subsidiary, Severneftegazprom. According to the latest data, the South Russian oil and gas field has Category A + B + C1 gas reserves of 29 TCF and Category C2 gas reserves of 7.4 TCF. In addition, oil reserves are estimated at 6.3 million tons. Gazprom has used South Russian field to swap assets with BASF and E.ON. Currently, BASF owns an interest amounting to 25% minus one voting share and 10% of the nonvoting stock (one share of preferred stock) in Severneftegazprom, while the Russian company, in turn, has increased its interest in the Russian-German joint venture Wingas GmbH from 35% to 50% minus one share and gained a 49% equity interest in Wintershall, a BASF subsidiary.
Speaking on December 18, 2007 at a gala ceremony marking the beginning of production from the field, Russian President Dmitry Medvedev5 stressed that, “This is a big undertaking and a very important one for us, essentially representing the development and strengthening of the rise of the Russian North. There is no doubt that the asset swap between the Russian companies, between Gazprom and BASF—and this was the principle on which the project’s realization was based—will improve the competitiveness of both companies and strengthen their positions on global markets.... This is a common investment to ensure sustainable energy security for Europe and the flourishing of the entire European continent.... Russia is open to such large and serious business projects, and to bold business initiatives for mutually profitable cooperation.” The annual industrial production volume at South Russian field is planned to be 882 BCF of natural gas.
On the Yamal Peninsula, TNK-BP [“Tyumen Oil Company-British Petroleum”] plans to invest about $60 million in the development of Russian fields this year. Oil production has begun, and two wells have been drilled, each producing about 165 tons of oil per day. Another production well is being drilled, and another exploratory well is planned. The field’s reserves are 440 million tons; geologic exploration could increase that figure.
Many more examples could be cited from recent times. In Western Siberia, Salym Petroleum Development NY, a joint venture of Shell Salym Development BV and Evikhon (a subsidiary of Siberia Energy), is successfully developing the Salym group of oil fields, which include the West Salym, Upper Salym, and Vadelyp fields. In 2007, 108 new wells were brought online and 180 miles of rock were drilled at the Salym fields. Daily oil production was 100,000 barrels. Total oil production last year more than doubled as compared to 2006, to 4.7 million tons. The company has not only achieved positive cash flow, but has also become profitable and has begun repaying its stockholder loans. According to its general director, Harry Brekelmans, the company plans to invest $200–250 million to develop the Salym project this year. From the beginning of field development in 2003 to the end of the current year [2009], and taking current-year investments into account, $1.2 billion will have been invested in the project. And by the end of the current decade, the total oil production specified by the technological plan for the Salym Group will exceed 6.6 million tons (about 44 million barrels) per year.
In the same region, the Italian corporations Eni and Enel have invested $852 million to form the joint venture Northern Energy (with 60% and 40% interests, respectively) to buy up some of the production assets of the bankrupt Yukos. In particular, the consortium has acquired the Arktikgaz, Urengoyl Inc, and Neftegaztekhnologiya oil production enterprises, which hold hydrocarbon development and production licenses in the Yamal-Nenets Autonomous District.
Also in Western Siberia in December 2007, the American oil service company Halliburton Co. signed a multimillion-dollar contract with Rosneft to service oil fields in Western Siberia. The American company won an order for hydraulic fracturing at 317 oil wells in the Ob Valley region.
In turn, the American oil services company Weatherford International Ltd. announced the acquisition, in February 2008, of Neftemashvnedreniye (Noyabrsk, Tyumen Region), which specializes in the manufacture of oil and gas production equipment. Neftemashvnedreniye produces flowing-well equipment such as “Christmas trees.” This isn’t Weatherford International Ltd.’s first acquisition in Russia, either: In late 2007, it acquired a stock interest in Borets, a major Moscow factory, which makes submersible downhole pumps for oil production. It is significant that the American company consistently acquires stock in Russian enterprises that make oil and gas production equipment.
Mention can also be made of the successful activities of Victoria Oil & Gas, a British company with a 74.6% stock interest in Severgazinvest, which is developing the promising West Medvezhye gas-condensate field in the Yamal-Nenets Autonomous District.
An instructive example of foreign investment in Russia occurred on March 21, 2008 in Tyumen, capital of Western Siberia, when Schlumberger formally opened its Siberian Oil Production Training Center, which is designed to train and retrain oil and gas professionals. The Center has no counterpart anywhere in the world, and the 370-acre campus includes a training building, dormitory cottages for students, and a well-equipped area with instructional wells for training in hydraulic fracturing, well servicing, control of drilling systems, etc. The Center can currently accommodate 300 specialists for training. In addition, a training course has been designed to teach safe driving, and a stadium and athletic complex have been built. Construction is actively continuing on the Center’s grounds: An area for geophysical research will be built, and three new training wells will be drilled. In all, the leading service company plans to invest at least $100 million in the project. This is but one of the major investment projects by international companies in Russia.
In Eastern Siberia, the joint venture Verkhnechonskneftegaz [“Upper Chona Oil and Gas”], whose stockholders are TNK-BP and Rosneft, is developing the Upper Chona gas-condensate field in the Katanga District, Irkutsk Region. The field is one of the largest in the region, with recoverable Category C1 and C2 reserves of 222 million tons of oil and 3.7 million tons of gas condensate. Natural gas reserves are estimated at 4.6 TCF. The company’s board of directors includes foreign citizens Gary Jones, Upper Chona project director, and David Jenkins, research director.
It should also be mentioned that on January 15, 2008, a new vertically integrated oil company appeared in Russia, formed under market conditions by the merger of Alliance, a Russian corporation, and West Siberian Resources (WSR), a Swedish firm that operates in three major oil regions of the Russian Federation: Western Siberia (Tomsk Region), Timan-Pechora, and the Volga-Urals region. The merger is of mutual benefit, because it creates a synergy of production and refining capacity. The merged company will have proven and inferred reserves of 484 million barrels of oil, a production volume of 51,000 barrels per day, and a refining volume of 70,000 barrels per day. The company’s organization includes 255 retail filling stations and 24 oil tank farms. The merged company’s capitalization, according to management estimates, will grow to $2.5 billion, with Alliance’s capital estimated at $1.5 billion today and WSR’s at $900 million. The merger is expected to more than double the company’s net profit and income, especially after commissioning the ESPO pipeline and reconstructing the Khabarovsk Refinery to achieve a refining yield of 93%, which will permit manufacture of Euro-5 fuel and Jet-1 aviation kerosene that could be exported to China and the Asia-Pacific Region, among others.